Previously, we blogged about the 2017 changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. This past year did not see any changes with respect to the permissibility of interstate winery DTC shipments, but there is one change on the horizon in 2018. Currently, winery DTC shipments are permissible and available in 43 states (including Washington, DC). The following eight states have laws prohibiting interstate winery DTC shipments, or have laws or other circumstances that effectively prevent interstate winery DTC shipments in most situations (such as laws limiting winery DTC shipments to on-site sales, or common carriers not servicing the state, etc.):
In 2018, the list above will be narrowed to seven states and winery DTC shipments will be permissible and available in 44 states, as Oklahoma opens up to direct winery shipments. As part of Oklahoma’s sweeping alcohol reform that was passed in 2016, a Direct Wine Shipper’s Permit was created (effective October 1, 2018), which will allow shipments by out-of-state wineries to Oklahoma consumers.
Contact one of the attorneys at Strike & Techel if you have questions about your winery’s operations or direct to consumer wine shipments.
This year brought changes to the landscape of interstate retailer direct to consumer (“DTC”) wine shipments. In August 2017, Missouri repealed Mo. Rev. Stat. § 311.462, which allowed out-of-state retailers to ship wine to Missouri consumers, provided the retailer was located in a state that allowed Missouri retailers to ship into the state (“reciprocal states”). Thus, the list of states that allow out-of-state retailer DTC shipping is now as follows:
Bear in mind that California, Idaho, and New Mexico are reciprocal states, and only allow shipments from out-of-state retailers located in one of states listed above. Furthermore, in order for a retailer to ship wine to consumers in the following states, the retailer must obtain a license: Louisiana, Nebraska, Nevada, New Hampshire, North Dakota, Oregon, Virginia, West Virginia, and Wyoming. Many of the states with a DTC license requirement for retailers also require retailers to report shipments into the state and pay taxes.
If you have any questions about direct to consumer shipments of alcohol, contact one of the attorneys at Strike & Techel.
On Wednesday, September 28, 2016, Governor Brown signed three alcohol-related bills into law, creating new on-sale restaurant licenses for San Francisco, legalizing the glass of bubbly you have with your haircut and criminalizing powdered alcohol. All three laws become effective on January 1, 2017.
SB 1285 - 5 New Restricted Restaurant Licenses for San Francisco
Senate Bill 1285 (“SB 1285”) adds Section 23826.13 to the California Business and Professions Code, which authorizes the California Department of Alcoholic Beverage Control (“ABC”) to allocate 5 new “neighborhood-restricted special on-sale general” licenses in San Francisco. The 5 new licenses are subject to most of the same privileges and restrictions – and the same original fee of $13,800 – as an on-sale general license for a bona-fide eating place (Type 47). However, these 5 licenses differ from regular Type 47 licenses in that they are neighborhood-specific, are nontransferable, and when surrendered, revert back to the ABC for issuance to a new applicant. This means that licenses will only be available, and must remain in, the eligible neighborhoods – Bayview’s Third Street, outer Mission Street in the Excelsior, San Bruno Avenue, Ocean Avenue, Noriega Street, Taraval Street and Visitacion Valley. Licenses in the most popular restaurant hubs remain available only by purchasing an existing license, market values of which often run several hundred thousand dollars. The new licenses also do not permit the exercise of off-sale privileges, like a Type 47 does.
In order to be eligible to apply for a license, SB 1285 requires a pre-application meeting, which must be conducted and verified by a local government body. This requirement includes notifying nearby residents, conducting a community meeting, outreach to certain neighborhood associations and to the San Francisco Chief of Police. The ABC will establish a priority application period in accordance with Cal. Bus. & Prof. Code § 23961, and if more than 5 applications are received, they will hold a lottery for eligible applicants.
AB 1322 - Beauty Salons and Barber Shops
Assembly Bill 1322 (“AB 1322”) permits beauty salons and barber shops to serve wine and beer without a license provided there is no extra charge for the service. The service can only be offered during business hours and no later than 10:00 p.m., and the amount of beer and wine cannot exceed 12 ounces and 6 ounces per customer, respectively. Further, the salon or barber shop providing the service must be in good standing with the State Board of Barbering and Cosmetology. Prior to AB 1322, the exception allowing unlicensed service of alcohol by a business to its customers only existed for limousines and hot air balloon ride services. (Cal. Bus. & Prof. Code § 23399.5)
AB 1554 - Ban on Powdered Alcohol
Assembly Bill 1554 makes it a crime to purchase or possess powered alcohol. The bill defines powdered alcohol as “an alcohol prepared or sold in a powder or crystalline form that is used for human consumption in that form or reconstituted as an alcoholic beverage when mixed with water or any other liquid.” The definition makes clear that vaporized alcohol (which is already illegal in California) is not powdered alcohol. The bill also prohibits the manufacture, distribution and sale of powered alcohol. An individual caught making, selling or using powered alcohol is guilty of an infraction and must pay a $125 fine. (Cal. Bus. & Prof. Code §§ 23794 and 25623)
For more information about the recent changes to California’s alcohol laws, contact an attorney at Strike & Techel.
On Friday, August 26, 2016, Illinois Governor Bruce Rauner signed Senate Bill 2989 (“SB 2989”) into law. SB 2989 amends various sections of the Illinois Liquor Control Act that affect direct wine shipping into Illinois as well as use of third party providers (“TPPs”). This post summarizes the changes made by SB 2989, which take effect on January 1, 2017. The higher license fees, described below, take effect immediately.
Harsher Penalties for Direct Wine Shipping Violations
SB 2989 imposes tougher penalties on direct wine shipping violations. Any person, including wineries, importers, and retailers, who distributes or sells 108 liters or more of wine (144 bottles of wine), 45 liters or more of spirits (5 12/750 cases), or 118 liters or more of beer (more than 28 12-packs of beer) without a license is guilty of a Class 4 felony for each offense, which has a minimum sentence of 1 year. Prior to SB 2989, the first offense was a business offense with a fine of not more than $1,000, and any subsequent offense was a Class 4 felony. For illegal shipments of less than 108 liters of wine, less than 45 liters of spirits, or less than 118 liters of beer, the penalty for the first offense is still classified as a business offense with a fine of not more than $1,000, and the penalty for subsequent offenses remains a Class 4 felony. Furthermore, any person who has already been issued a cease and desist notice from the State Commission could face the same felony charges.
New Disclosure Requirements for Winery Shipper’s Licensees and Reporting Requirements for TPPs
For new and renewing applicants of an Illinois winery shipper’s license, SB 2989 requires disclosure of all third parties authorized to ship the licensee’s wine, excluding common carriers, to the Illinois Liquor Control Commission (“ILCC”). Licensees must submit each third party’s name and address and file a copy of the written appointment of the TPP with the ILCC. SB 2989 provides that a TPP, other than a common carrier, shipping wine on behalf of a winery shipper’s licensee is the agent of the licensee, and that the licensee is responsible for the acts and omissions of the TPP. In turn, SB 2989 requires that each TPP consent to the jurisdiction of Illinois and the ILCC. Furthermore, SB 2989 imposes a new audit requirement on any appointed TPP, which will be required to file with the ILCC, by February 1 of each calendar year, a statement detailing each shipment made to an Illinois resident. The ILCC also has the power to deny any third party appointment if the TPP previously violated the Liquor Control Act.
Higher License Fees
Across the board, SB 2989 increases license fees for manufacturers, wholesalers, and retailers. The fees for a winery shipper’s license for a winery producing under 250,000 gallons annually have been increased from $150 to $350 for the initial application and $200 for an online renewal. The fees for a winery shipper’s license for a winery producing over 250,000 gallons, but under 500,000 gallons annually have been increased from $500 to $1,000 for the initial application and $750 for an online renewal. The fees for a winery shipper’s license for a winery producing 500,000 gallons or more annually have been increased from $1,000 to $1,500 for the initial application and $1,200 for an online renewal.
For more information about the changes to the Illinois direct shipping laws, contact an attorney at Strike & Techel.
The cider and perry industry is booming. More and more producers are entering the market, and existing producers of other alcoholic beverages are expanding into cider and perry production. Although commonly associated with beer, cider and perry are actually considered wine under federal law, and can be interchangeably labeled as apple wine or cider, and pear wine or perry. Production of cider or perry requires a bonded winery permit from the Alcohol & Tobacco Tax and Trade Bureau (“TTB”). It must be made wholly from the alcoholic fermentation of sound, ripe apples, or sound ripe pears (the addition of sugar, water, or alcohol is permitted in specified quantities). The TTB recently updated its FAQs with a section on cider, which can be found HERE.
A cider or perry which is over 7% alcohol must be labeled in the same manner as wine, and a Certificate of Label Approval (“COLA”) must be obtained for the product from the TTB. If it is under 7%, the product is subject to Food and Drug Administration (“FDA”) labeling rules, including a required nutritional statement (see our recent blog posts on FDA alcoholic beverage labeling HERE and HERE). If any flavoring materials are added, like honey, spices, or artificial flavors, the product requires formula approval, even if it is under 7%.
Each state has its own regulatory framework for cider and perry. For example, in California, a Type 2 Winegrower can make cider and perry, and a licensed Type 1 Beer Manufacturer may also produce cider and perry without any additional state license (although they still need the TTB bonded winery permit). In New York, Breweries, Farm Breweries, and Farm Wineries can make cider and other “pome fruit” wines, including perry (again with the TTB winery permit). Interestingly, in New York, a product marketed as a cider or perry, up to 8.5% alcohol, must be brand label registered, and is not eligible for the standard wine exemption from registration.
If you have any questions about producing cider or perry, please contact one of the attorneys at Strike & Techel.
The general rule for excise tax reporting for alcohol producers is that returns must be filed semi-monthly (i.e. twice a month). A special exception to that rule allows a small producer, who does not reasonably expect to be liable for more than $50,000 in excise tax in the year, to file quarterly returns. Each small producer is required to make a choice of whether to file quarterly or semi-monthly, with that choice impacting the bonding requirements for the production facility. The less frequent the excise tax payment, the higher the required bond amount. Very small wineries currently benefit from even longer reporting and tax deadlines. Wineries that expect to pay less than $1,000 in wine excise taxes in the coming year may file excise tax returns annually. Operations reports may also be filed annually if the winery doesn’t expect to produce more than 20,000 gallons of wine in any one month in the calendar year.
Now, under recent guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), small brewers will be forced to file returns quarterly rather than semi-monthly. This change will affect around 90% of licensed brewers. With the mandatory quarterly filing, the required bond is set at a flat $1,000 amount (previously, the bond for a brewer paying $50,000 in excise tax would have been $5,000 if filing semi-monthly, and close to $15,000 if filing quarterly). A brewery filing quarterly tax returns must also file a quarterly report of operations. To further lessen the burden of reporting for both brewers and TTB employees, the information required in the reports has been revised, with two sections removed. To see the full guidance, click here.
In addition to the TTB changes for small breweries, there is also a bill pending in the Senate that could reduce the compliance burden for all small producers. It would exempt small breweries, wineries and distilleries (i.e. not liable for more than $50,000 in excise tax in the year) from all current bonding requirements and would allow any small producer – not just small wineries—owing less than $1,000 a year to file annually. The proposal passed the Senate Finance Committee on February 11, 2015, and is awaiting consideration on the Senate floor. It has not yet been introduced in the House.
If you have any questions about brewery, winery or distillery operations reporting or taxes, contact an attorney at Strike & Techel.
Each year, the Alcohol and Tobacco Tax and Trade Bureau (TTB), conducts a random sampling of alcoholic beverages, known as the Alcohol Beverage Sample Program. TTB agents purchase alcohol products from retail stores and take them back to the TTB lab for review. The survey identifies compliance issues with the tested beverages, including incorrect alcohol content levels, and Certificate of Label Approval (COLA) discrepancies. The TTB recently released the results of their 2014 review, finding 139 out of 450 total products sampled to be non-compliant.
The most commonly identified issue was mislabeled alcohol percent by volume (ABV), in which the ABV stated on the label was either above or below the actual tested alcohol content. In distilled spirits products, 42 of the 190 beverages sampled were found to contain an ABV over the advertised content, while 14 products contained a lower ABV than advertised. Aside from misleading the consumer, incorrect ABVs can lead to regulatory action from federal tax authorities if the actual alcohol content would place the product in a different tax class.
Another common compliance issue was a discrepancy between the product’s label information and the information listed on the product’s COLA. When a bottler or importer applies for label approval with the TTB, they are issued a COLA and their product’s label must match the information provided on their COLA application (with the exception of some limited information which can be changed without a new COLA). Of the 139 non-compliant products, 40 had labels with missing or added information that did not match their approved COLA.
Other prevalent compliance issues included no COLA for the product, errors in the mandatory government warning message, and incorrect statements of class or type of alcohol. Possible TTB actions in response to incorrectly labeled products could include monetary fines and other regulatory penalties, and at a minimum, would require that the non-compliant labels be corrected. To see the full results of the sample program, click here.
In December 2014, the California ABC posted a new Industry Advisory about merchandising services. Free services provided by suppliers to retail licensees, such as stocking shelves, pricing inventory, rotating stock, etc., are prohibited things-of-value under California Business & Professions Code sections 25500 and 25502. However, a number of permitted exceptions are separately provided for in Section 25503.2. The Advisory was posted in response to inquiries and complaints about the scope of permissible activity. When ABC receives multiple complaints about impermissible conduct, investigations and license accusations may well follow, so it would be prudent for suppliers to review the scope of permissible merchandising activities.
Permitted activity varies depending on the type of retailer and the products involved so we created a simple chart below to help keep it straight.
Note that in all cases, any merchandising activities can only be done with the retailer’s permission. In no case can a supplier move the inventory of another supplier, except for “incidental touching” to access the space allocated to the licensee providing the merchandising service.
In honor of Repeal Day, partner Kate Hardy agreed to share these fun pieces from her collection of Prohibition-era alcohol prescriptions. One prescribes whisky for the treatment of anorexia, and the others prescribe wine and whisky for unknown ailments. The directions for usage seem reasonable enough: take a pint in a wine glass every four hours, or mix it in eggnog. One of the prescriptions is for “Vin Gallici,” a contemporary of the also often prescribed “Spiritus Frumenti.” These are liquids more commonly referred to as wine and whisky. They were used in many prescriptions during Prohibition, possibly in the hope that they would look more medicinal if they were in Latin.
Appellations of origin are the place names that describe where the grapes that make up a given wine were grown. There are rules controlling the statement of appellation on the label, all of which are aimed at making sure that the label of the product accurately reflects what is inside the bottle. Most of the appellation labeling rules are in the Code of Federal Regulations at 27 CFR Part 4, but state law must also be considered, and can sometimes be more limiting than the federal rules.
Appellations are required on wines if the label also includes a varietal designation or a vintage year (27 CFR 4.34(b)). The chart below lists some of the basics on appellations for wines made from California grapes.
Appellation on Label
What is in the Bottle?
75% of the fruit must be from California and the wine must be finished within California or an adjoining state. (27 CFR 4.25)
A County in California
75% of the fruit has to be from the county and the wine has to be finished in California. (27 CFR 4.25)
Two or Three Counties in California
All of the fruit has to come from the listed counties, the percentage of fruit from each county has to be listed on the label, and the wine has to be finished in California. No more than three counties can be listed. (27 CFR 4.25)
An American Viticultural Area (AVA) in California
AVAs are specific geographic areas approved by the TTB. A list of all of the AVAs in the country is available here. 85% of the fruit has to come from the AVA and the wine has to be finished in California. (27 CFR 4.25)
Special California Requirements
Appellation on Label
Special California Rule
“California” or any geographical subdivision of California (including a county or two or three counties)
100% of fruit must come from California. (Cal. Code Regs., tit. 17, § 17015). This rule is more specific than the federal rules, and means that any wine with a California appellation of any kind must be made from 100% California fruit.
Labels MUST say this if also labeled with an AVA entirely within Sonoma County. (Cal. Bus. & Prof. Code 25246)
Labels MUST say this if also labeled with an AVA entirely within Napa County. (Cal. Bus. & Prof. Code 25240)
Labels MUST say this if also labeled with an AVA entirely within the Lodi AVA (Cal. Bus. & Prof. Code 25245)
Labels MUST say this if also labeled with an AVA entirely within the Paso Robles AVA (Cal. Bus. & Prof. Code 25244)
“Napa”, “Sonoma” and any AVA in Napa County
The rules for using “Napa,” “Sonoma,” and any AVAs in Napa are especially strict. Those terms cannot appear on the labels unless the wine in the bottle qualifies for use of the term under the federal labeling regulations.(Cal. Bus. & Prof. Code 25241, 25242 and 27 CFR 4.25)
Counties of Sonoma, Napa, Mendocino, Lake, Santa Clara, Santa Cruz, Alameda, San Benito, Solano, San Luis Obispo, Contra Costa, Monterey or Marin
Any written representation (e.g., labels, advertising, company letterhead, etc.) that a wine is produced entirely from grapes grown in these counties must be true. (Cal. Bus. & Prof. Code 25237)
“California Central Coast Counties Dry Wine”
This designation can only appear on a label if all of the grapes are from the counties of Sonoma, Napa, Mendocino, Lake, Santa Clara, Santa Cruz, Alameda, San Benito, Solano San Luis Obispo, Contra Costa, Monterey or Marin. (Cal. Bus. & Prof. Code 25236)
Related Labeling Considerations
The appellation rules noted above are intertwined with other federal labeling regulations, which may also come into play. For example, if a label includes a varietal and an appellation, 75% of the grapes used in the wine must be of the stated grape type and all of those grapes must come from the stated appellation. (27 CFR 4.23) If the label includes a vintage year and an appellation, 85% of the grapes in the wine must be from the stated vintage year – and if the appellation is an AVA, the percentage requirement rises to 95%. (27 CFR 4.27)
On September 30, 2014, the California Governor signed into law Assembly Bill 520, which revises the state’s laws on consumer instructional tastings at on-premises licensed retailers (i.e., bars and restaurants). Prior to the revision, Cal. Bus. & Prof. Code § 25503.5(c) permitted winegrowers, distilled spirits manufacturers, or an “authorized agent” of those licensees to conduct consumer tastings. The new legislation removes the consumer tasting provisions from Section 25503.5 (which now deals only with tastings for licensees and their employees) and creates a stand-alone consumer tasting statute in new Section 25503.57. The new law contains the same essential provisions as the old law, e.g., the event should be instructional in nature and can include information about the history, characteristics, and methods of serving the product; limited to 3 tastings per person, per day; tasting size limited to ¼ oz. for spirits and 1 oz. for wine.
The new law expands the list of licensees authorized to conduct consumer tastings to include a “winegrower, California winegrower’s agent, beer and wine importer general, beer and wine wholesaler, wine rectifier, distilled spirits manufacturer, distilled spirits manufacturer’s agent, distilled spirits importer general, distilled spirits rectifier, distilled spirits general rectifier, rectifier, out-of-state distilled spirits shipper’s certificate holder, distilled spirits wholesaler, brandy manufacturer, brandy importer, or California brandy wholesaler.” The authorized licensee may also use a “designated representative” to conduct a tasting. The law expressly excludes wholesaler/retailer combination licensees (Type 9/17/20) and limited off-sale wine retailer licensees (Type 85).
The new law also clarifies that both authorized licensees and retailers can advertise the events in advance, subject to the usual restrictions (suppliers cannot list prices or include laudatory statements about the retailer – name and address only – and cannot pay for the retailer’s ads). Only one licensee’s products can be promoted at any one time and a “designated representative” can only represent one licensee at a tasting. The new law takes effect January 1, 2015.
Traditionally a customer wanting a bottle of alcohol in California would go to their local package or grocery store to get it or, if they were lucky enough to be in wine country, directly to a winery. In recent years, with consumers actively experimenting and looking for more variety, and with the boom in online shopping generally, consumers have a lot more options to find that elusive boutique wine, craft beer or small batch spirit brand that they have heard about and have been looking for. All of this means that consumers are turning more and more to the internet to find the alcohol that they want to serve at home. A quick Google search of internet alcohol sales in California yields more than 10 million results.
SPIRITS: Only a California Type 21 off-sale general licensee can sell a bottle of distilled spirits direct to consumer (DTC). Although a distiller can host a customer at the distillery to taste the products that are made there, a distiller cannot sell a bottle of spirits to a customer to take home.
BEER: There is a bit more leeway for beer with brewers being able to offer tastings and sell beer to customers. The CA law was revised just this year to make it very clear that a brewer can only sell its own beer to customers, and not beer made by other brewers, unless it gets a retail license. As a matter of policy, the ABC will allow a beer manufacturer to also make an online sale of its beer to a consumer. An on-premises retailer like a restaurant or a bar can also sell beer to customers to take home, and by the same ABC policy can sell online. Off-sale retailers like grocery stores can sell beer to consumers online.
WINE: As with other alcohol, wine can be sold DTC by off-sale retailers. An on-sale retailer can also sell wine online, under ABC policy allowing online sales by retailers. A winery can also sell wine DTC, both at the winery and online, including through wine clubs. The state also offers two opportunities for the online retail sale of wine without a traditional brick and mortar store. The first of these is with a 17/20 wholesale and retail combination, or a 9/17/20 import/wholesale/retail combination. In both cases, wine can be sold online to customers and indeed can only be sold by direct mail, telephone or the internet from a location which is not open to the public. The license combination is often located right at the warehouse, enabling the licensee to easily pick and pack and ship out customer orders. The 17/20 combination allows the holder to sell directly to retailers as well as consumers and, with the addition of the type 9, the licensee can bring in wine from out-of-state and get it all the way to a consumer without passing through any other licensee’s hands. The second option is more recent and consists of a type 85 license, which gives the licensee the ability to sell wine at retail without the added wholesale or import rights. The chief distinction between the 85 and the 17/20 combination is that the 17/20 licensees have a wholesale license so they are required to make sales to retailers in addition to consumers, whereas the type 85 licensee sells only to consumers.
OUT-OF-STATE SELLERS: If you are a seller of alcohol located out-of-state, only wine can be sold DTC to California consumers and only under certain circumstances. A licensed winery in another U.S. state can get a direct shipper’s permit to sell DTC. For a licensed retailer in another state, the laws are murkier. California has a “reciprocity” statute which only permits out-of-state retail sales from states which allow a California retailer to ship to that state’s consumers. Currently, only thirteen states and the District of Columbia allow such sales. However, the concept of “reciprocity” was criticized by the Supreme Court in its 2005 decision in Granholm v. Heald, 544 U.S. 460, with specific reference to this California law. The law itself has not been challenged and thus the limitation remains on the books.
If you are interested in learning more about direct shipping laws in California or elsewhere, contact one of the attorneys at Strike & Techel.
“Ready-to-drink” alcoholic beverage categories are continuing to boom. Variously known as flavored malt beverages (FMBs), alcopops, progressive adult beverages (PABs) and ready-to-drink cocktails (RTDs), all sorts of flavors are being added to all sorts of products to create new taste sensations. Despite RTDs generally suffering some decline after Four Loko triggered state bans on adding caffeine to alcoholic beverages (covered here, here, here, here, and here), the category has well and truly picked up again in recent times.
If you are looking to produce a flavored product, we have put some tips together to keep in mind.
One of the key things under federal law to be aware of with FMBs is that most of the alcohol must come from the malt beverage base. If the product is below 6% alcohol, at least half of the alcohol must come from the production of the beverage itself and cannot come from nonbeverage items like flavorings (which often contain high alcohol levels). Above 6%, no more than 1.5% of the alcohol can be from nonbeverage ingredients.
For wine-based products, an important factor to keep in mind is to make sure that your formula leaves you with a product that you can sell in grocery stores in states that do not allow them to sell wine. In New York, for example, a wine product that can be sold in grocery stores must meet a strict definition which includes that it must be below 6% alcohol, and it must contain juice and carbon dioxide. If you can meet the definition, you fall outside price posting requirements in the state, but you still have to register the brand there. Similarly, in a state like New York, you should be aware that a distilled spirits based RTD, even if below 6% or 7% alcohol, can’t be sold at grocery, convenience and pharmacy type stores where most low alcohol products are sold.
It is important to know about the various regulatory agencies that monitor the labeling of alcoholic beverages. FMBs and wine coolers, depending on their alcohol content, could fall under the regulation of the Food and Drug Administration (FDA), the Alcohol and Tobacco Tax and Trade Bureau (TTB), or both. For example, labeling requirements for wines containing 7% or more alcohol are controlled by the TTB, but wine coolers under 7% alcohol are regulated by the FDA, because such products do not fall under the federal definition of wine. In addition, labeling requirements for beers not made from malted barley and hops are regulated by the FDA (such as sorghum beer), while malt based products and distilled spirit based products are subject principally to TTB requirements.
If your product falls under TTB’s labeling jurisdiction, you will need to get a Certificate of Label Approval (COLA) and you will likely need to get formula approval (see, for example, our previous blog on easing up of beer formula requirements here). If your product label is FDA regulated, you will have to include a nutrition facts statement and other information that would not be required under the TTB labeling regulations. Bear in mind that even products under FDA jurisdiction for labeling still may need TTB formula approval. You need to be careful about using any type of name which makes customers think that the product might be a spirit drink if it isn’t (including cocktail names like margarita or daiquiri).
In addition to formulation and labeling issues, recycling laws surrounding FMBs and similar products can be tricky. Ten states, including California (with its CalRecycle program), Connecticut, Hawaii, Iowa, Maine, Massachusetts, Michigan, New York, Oregon, and Vermont, have container recycling laws that apply to a variety of alcoholic beverages. The specific products that are subject to the laws vary from state to state, as do the container marking requirements. Wine- and spirits-based products may be subject to recycling laws, even in states where wine and distilled spirits are exempted.
Before producing a flavored malt beverage or other ready to drink beverage, be sure to familiarize yourself with the special rules that apply to these products. For questions about any of these products, contact one of the attorneys at Strike & Techel.
To be labeled as “estate bottled,” a wine must be, among other things, made from grapes grown in an American Viticultural Area, on land that is owned or “controlled by” the winery, and the winery must crush, finish, age and bottle the wine in a continuous process.
Previous guidance from the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) suggested that a wine would not be entitled to use the “estate bottled” designation if a change of ownership of the winery occurred at any point during the winemaking process, because the new owner technically would not have “controlled” all phases of the process. To address this issue, sellers and buyers of wineries that produce “estate bottled” wines would sometimes enter into an Alternating Proprietorship Agreement (“AP”) whereby the seller would maintain its bonded winery operations until all wine in process at the winery as of the closing date had been bottled and labeled. This approach was difficult for both sellers and buyers, given that the AP could be in effect for a lengthy period of time depending on which stage of production the “estate bottled” wine was in.
In a recent private letter ruling, the TTB advised that it has reconsidered its position and that the proprietor of a winery can use an “estate bottled” designation for wine that was grown and fermented by a predecessor proprietor and bottled by a new proprietor (provided the wine also met the other requirements under 27 C.F.R. § 4.26). The ruling provides that the ownership of a winery may change while the wine is in process as long as the bottling winery does not change. The TTB further explains that the definition of “controlled by” refers to the land on which the grapes are grown and the winery operates, as opposed to the owner of such land. With a change in winery ownership, the “estate” land is not altered, and thus the new owner can maintain the “estate bottled” designation.
This guidance from the TTB should come as a welcome relief to potential purchasers and sellers of wineries that produce “estate bottled” wines.
For questions about the acquisition or sale of a winery, please contact one of the attorneys at Strike & Techel.
Massachusetts wine consumers will soon have equal access to Napa Cabs, Oregon Pinot Noirs, and New York Rieslings, as the commonwealth finally joins the ranks of direct shipping states with the passage of House Bill 294. Effective January 1, 2015, the bill will allow the Massachusetts Alcoholic Beverages Control Commission to issue licenses allowing out-of-state and in-state wineries to ship a limited amount of wine, by common carrier, directly to Massachusetts residents.
Prior to the passage of HB 294, out of state wineries were effectively shut out by the Massachusetts direct shipping law, which purported to allow direct shipping, but included so many restrictions and limitations that it was unworkable. Despite a successful court challenge to the existing law, in which the 1st Circuit Court of Appeals ruled that Massachusetts shipping law was discriminatory, the legislators have been unable until now to pass replacement legislation. In 2013, House Representative Theodore Speliotis introduced HB 294, and with the help of fellow lawmakers and a celebrity endorsement from New England Patriots quarterback-turned-Washington state vintner Drew Bledsoe, the measure was approved and has now been signed by the governor July 11th 2014. Under the new law, all U.S. wineries with a federal basic permit and home state winery license may obtain a license to ship up to 24 cases of wine per year to a Massachusetts resident 21 years of age or older. Like most direct shipper licenses, the Massachusetts license will also require the winery to submit a yearly report to the Commission and Department of Revenue detailing the total gallons of wine shipped, as well as require taxes be paid on all products shipped. The initial license fee will be $300.00 per winery, with a $150 annual renewal fee.
Common carriers delivering in the state are required to have a fleet permit and each vehicle transporting alcohol under the permit must have a certified copy of it in the vehicle, at a cost of $50 per certified copy.
The new law has drawn some criticism because it permits shipments only from U.S. wineries, effectively prohibiting direct shipment of imported wines to Massachusetts consumers. The Massachusetts law is not alone in this restriction; importers and retailers are excluded by the direct shipping laws of some other states, as well. But the law nonetheless represents another step forward in direct to consumer wine sales. Only eight states continue to have a complete ban on winery shipments direct to consumer. If you are interested in learning more about direct shipping law in Massachusetts or elsewhere, contact one of the attorneys at Strike & Techel.
Almost three years ago now, as reported on Imbiblog here, the TTB accepted its largest set of offers in compromise ever, for trade practices violations. Some of the biggest names in the business agreed to pay hundreds of thousands of dollars to the TTB even though they denied violating any laws or regulations. The allegations of trade practice violations came from participation by the companies in the 2008-2009 Harrah’s Nationwide Beverage Program. Unlike notable earlier trade practice investigations by the TTB, where there was state participation and a parallel investigation, there were no allegations made against retailers involved in the program, and no fines or penalties assessed against retailers (see for example the 2004-2009 joint investigation by Illinois and TTB into payments made by suppliers and wholesalers to Sam’s Wine & Spirits, Inc., then the largest wine retailer in the country, and its captive third party marketing organization Skyline Marketing, Inc.). The 2011 settlement by TTB was acknowledged to result from a retailer-initiated promotional program. Given that the TTB has extremely limited jurisdiction over alcohol retailers, however, the agency was unable to enforce any allegations against Harrah’s for the promotion. Had the State of Nevada participated in the investigation, it is more likely that charges could have been brought.
Now, the Office of the Attorney-General in Nevada has come out with an open letter to retailers, wholesalers and suppliers of liquor in Nevada in what appears to signal an intention to focus more attention on trade practice issues in the State. The advice contained in the letter is phrased as a “reminder” to the industry of prohibited and restricted activities. It covers the following issues:
- No loans from wholesalers to retailers of money or other thing of value, no investments by a wholesaler in a retailer, no complimentary furnishing of premises or equipment, and no joint operation of a retail business;
- Adherence to strict payment terms, with no preference accorded by wholesalers to certain retailers, and with a cessation of sales and monthly service charges in case of delinquency;
- No substitution of brands without consent, and no delivery of unwanted or unnecessary inventory;
- No required boycotts of other suppliers;
- No price fixing down the supply chain by suppliers imposing resale prices on wholesalers, and no profit splitting with the supplier getting a specified portion of the wholesaler’s profit margin;
- No excessive marketing contributions being required by suppliers of their wholesalers, for promotions outside the wholesaler’s market or beyond the terms agreed by the parties;
- Strict adherence to the quoted price from suppliers to wholesalers;
- No discrimination by suppliers among wholesalers (note that Nevada has a franchise law meaning that this refers to discrimination between wholesalers in different parts of the state as only one wholesaler can be appointed in any given market); and,
- No deceptive trade practices.
The letter refers to concerns with illegal terms or incentives by industry members looking for a competitive edge in the market. It notes that the Attorney General has jurisdiction over these issues and is required by law to take appropriate legal action to enforce the provisions of law setting forth the restrictions above. The Attorney General’s office recognizes in the letter its duty to investigate and prosecute deceptive trade practices in Nevada. Should the type of circumstances in the TTB’s investigation in 2011 arise again, it will be very interesting to see what action is taken by the state in light of this clear signal that it is unlikely to sit by if unlawful trade practices occur in Nevada.
If you have any questions about trade practice issues, in Nevada or elsewhere, contact one of the attorneys at Strike & Techel.
Last Thursday, the Tennessee House of Representatives passed House Bill 610 by a vote of 71-15, voting to allow the issue of the sale of wine in grocery stores to be submitted to voters in local referendums, and creating a permit for the sale of wine by grocery stores. On January 30, the Senate had approved Senate Bill 837 by a vote of 23-8. The Bill will now be returned to the Senate to review the remaining differences between the two bills, before it goes to the Governor for signature. If signed by the Governor, it is anticipated that the issue could be on local November ballots for consumers to weigh in on local approval of grocery store wine sales.
One of the key differences between the two bills was fixed by the House in its new version, with the reduction of minimum size for grocery and convenience stores from 2,000 to 1,200 square feet, allowing about 500 more convenience stores to qualify. The House also reduced the fee for a grocery store wine license to $1,250 from $2,000, bringing it closer to the $850 in the Senate Bill. Already, following the House vote, Sen. Bill Ketron, the Republican who sponsored the Senate Bill, indicated to reporters that he planned to accept the House version and could ask for a vote as soon as March 3.
Even if approved, wine sales won’t be possible in grocery locations until summer 2016 due to an agreement reached with lobbies for liquor stores and wholesalers that had opposed the proposals. In another concession to liquor stores, both bills open up opportunities for traditional liquor stores to sell items other than alcohol and to do so as soon as this summer, two years before any grocery store wine sales could begin. Liquor stores are currently allowed to sell only wine and distilled spirits and a few minor accessories like corkscrews. Additionally, grocery stores would be subject to a minimum 20% markup on wines sold, in an attempt to address volume discounting, and would be prevented from offering combined deals of wine and other grocery items. To encourage wholesaler support, the Senate Bill allows for wholesalers to be located outside the four major cities in the state which they are currently restricted to, and the House Bill would extend that even further to any county which currently permits bars or liquor stores to operate. Blue laws, preventing Sunday sales of alcohol, will not be affected by any new legislation, and such sales will continue to be prohibited.
The debate in Tennessee has been ongoing since 2006. It is not the only state which has been discussing this issue as we previously blogged here. Currently, thirty-five states do not restrict the sale of wine in grocery stores. No state has managed to pass legislation changing the status quo since Iowa permitted grocery store sales in 1985. Factions in New York, now the second largest wine-producing state by volume, have attempted to pass wine in grocery store bills on numerous occasions, including a significant push in 2011. The Kansas House Commerce, Labor and Economic Development Committee held a hearing Wednesday on House Bill 2556 which would allow the sale of full strength beer and wine in grocery stores, inducing vigorous debate. A bill introduced to the Oklahoma Legislature this month, which would permit wine to be sold in grocery stores and nonalcoholic beverages and refrigerated beer and wine to be sold in liquor stores, died in Committee. And last month, a federal appeals court in Kentucky ruled that the state’s ban on grocery store sales of wine and liquor was constitutional. The court said that the state had every right to ban such sales, “just as a parent can reduce a child’s access to liquor.” The grocers who filed the original challenge to the law are reviewing rehearing and appeal options now.
If you have any questions about where wine can be sold, contact one of the attorneys at Strike & Techel.
Strike & Techel’s own Dan Kramer was featured in an article in Sunday’s San Francisco Examiner. Dan was interviewed for the article “Want to be in the booze business in SF? Better know the law” in which he discusses his experience in the alcoholic beverage industry, including the complications and expenses of obtaining a retail license in San Francisco, California promotional issues, as well as distribution and direct shipping. As Dan pointed out, alcoholic beverage legal issues can not only be complicated, but they are often not on people’s radar as they venture into the industry. If you’re just getting started in the industry or have any questions about retail licensing, distribution, direct shipping, or just about anything else in the industry, call Dan or one of the other attorneys at Strike & Techel.
This blog entry is part of a continuing series discussing important steps to get started in the alcoholic beverage industry. Once you have pinpointed a location for your business (discussed in a previous post, here), you will need to obtain a license, or a combination of licenses, before you commence operations. To determine what type(s) of license(s) you need, here are some answers to questions you may be asking:
* Do the Tied-House Laws Permit Me to Hold the Licenses I Want? Federally and across all states, “tied house” laws generally prohibit the same person or entity from having an ownership interest in alcohol beverage businesses in more than one of the 3 tiers -manufacturing/importing, distribution and retail. (To learn more about tied house laws, review this post.) However, that restriction is far from absolute. Many statutory exceptions have been carved out of the 3-tier system to permit cross-tier licensing and the resulting patchwork of exceptions can be difficult to comprehend. For example, in California, wineries can also own restaurants (subject to restrictions) and certain off-sale retail stores. Small breweries (less than 60,000 barrels/year) can own on-sale retailers but large breweries cannot. Beer and wine wholesalers cannot also be retailers, unless they sell only wine through the retail store. Other states have their own set of hard-to-explain exceptions.
* What Does My License Permit Me to Do? The general rule is that manufacturers sell to wholesalers; wholesalers sell to retailers; and retailers sell to consumers. But this, too, is riddled with exceptions. California wineries and breweries can sell their products directly to retailers and consumers without using a distributor, but distilled spirits manufacturers can sell only to distributors and cannot themselves hold a distributor license. Rectifiers, on the other hand, can act as their own distributor and sell their products – and spirits products made by anyone else – directly to retailers. Moreover, you may need more than one license to operate your business. For example, if you are going to be operating a distillery, you will need a Type 4 (Distilled Spirits Manufacturer’s license), and a Type 6 (Still) license. If you are importing distilled spirits from outside of California and distributing them to retailers you’ll need a Type 12 (Distilled Spirits Importer), and a Type 18 (Distilled Spirits Wholesaler). California issues dozens of different licenses so it is important to know exactly what you want to do, which licenses are needed to accomplish it, and whether you are eligible to hold them.
* What are the Processing Times to Obtain a License? In California, it takes about 90-120 days to process an application for a new license, and slightly less time to transfer an existing license at a premises that is already licensed. It will take longer to process an application that is incomplete, contested by neighboring residents or the local authorities, or filed incorrectly. Also keep in mind that the ABC cannot issue a license until it has received confirmation from the City/County that all required use permits have been obtained. Each applicant will be assigned a local ABC investigator to handle the application until the process is completed. Currently, U.S. Alcohol Tobacco Tax Trade Bureau (“TTB”) licenses are processing in about 90 days, similar to California licenses.
* May I Obtain a Temporary Permit? Provided that you are transferring an existing license at an already licensed premises, the California ABC may grant a temporary permit so you may operate your business while the license transfer application is being processed. A temporary permit is not available in connection with applications for new licenses or applications to transfer existing licenses to a premises that has not been previously licensed.
* What Are the Costs Involved? Depending on what type(s) of license(s) applied for, the cost can vary considerably. A schedule of license costs is available here. Some retail licenses are limited in numbers and must be purchased on the open market. Prices for these licenses vary greatly by type and location. For instance, a Type-47 (On-sale general eating place) may sell for $200,000 in San Francisco, whereas the same type of license in Fresno County currently only costs $12,000.
In conjunction with your ABC application, you may also need to obtain other federal, state or local licenses/permits. In California this may include, for example: federal licenses through the TTB; a certification from the Secretary of State that you are qualified to do business in the state; and a sales tax permit from the State Board of Equalization.
Contact one of the attorneys at Strike & Techel if you have questions about applying for a license to get started in the alcohol beverage business.
Keg wine is a growing trend. Packaging and selling wine in kegs has a lot of advantages. Wine kegs are refillable and reusable. Wineries save on packaging costs, and restaurants enjoy the convenience of serving many customers without constantly uncorking bottles.
Alcohol laws dictating permissible containers and packaging for wine are expanding in concert with retailer and consumer interest in keg wine. For example:
- Effective July 1, 2013, Florida allows the sale of wine in 5.16 gallon canisters, which can be tapped like kegs, to restaurants and bars.
- Effective April 1, 2013, Oregon allows any wine shop, grocery store, wine bar or restaurant to buy wine by the keg and resell it to consumers by the glass, or in some establishments, consumers can fill their own containers in a size that is 2 gallons or less.
Most states continue to have restrictions on this “growler” type of service by a wine shop. Those restrictions comport with federal rules saying that packages cannot be filled with wine except at a winery or at a “tax paid bottling house.”
We expect to see more legislation in the coming months and years if this trend continues.
If you have any questions about keg wine, feel free to consult one of the attorneys at Strike & Techel.
Barry Strike will be a presenter at the International Wine Law Association (AIDV) International Conference on October 18-20 in Vienna, Austria. This annual conference brings together speakers and participants from around the world to discuss global strategies for legal issues related to the wine industry. Barry will present on U.S. regulatory agencies available to assist international wine companies.
Kristen Techel will be speaking at the Wine Law Forum on Friday November 22, from 9:00am-5:00pm at Hotel Paradox in Santa Cruz, California. Kristen will share her expertise on the emerging role of third party providers in a discussion entitled “Third Party Providers: Unlicensed Participants in a Licensed Industry.” The event is co-sponsored by the International Wine Law Association (AIDV).
If you would like more information on the AIDV organization or about either conference, please click here.
Barry Strike will be a presenter at the International Wine Law Association (AIDV) International Conference on October 18-20 in Vienna, Austria. This annual conference brings together speakers and participants from around the world to discuss global strategies for legal issues related to the wine industry. Barry will present on U.S. regulatory agencies available to assist international wine companies.
Kristen Techel will be speaking at the Wine Law Forum on Friday November 22, from 9:00am-5:00pm at Hotel Paradox in Santa Cruz, California. Kristen will share her expertise on the emerging role of third party providers in a discussion entitled “Third Party Providers: Unlicensed Participants in a Licensed Industry.” The event is co-sponsored by the International Wine Law Association (AIDV).
If you would like more information on the AIDV organization or about either conference, please click here.
On October 1, 2013, Governor Andrew Cuomo signed into law S. 267/A.1512, creating a new venue for New York wineries to sell their wines to consumers. As of March 26, 2014, farm market stands may apply for a new “roadside farm market license” to sell New York State labeled wine that is produced by no more than 2 licensed farm wineries, micro-wineries or special wineries located within 20 miles of the roadside farmers’ market.
This law is in keeping with Governor Cuomo’s efforts to bolster the New York wine industry. In a statement released after enacting the new law, Governor Cuomo said: “These new laws will build on our continuing efforts to promote New York’s wine industry across the state and beyond, boosting tourism, local economies and job growth. We are increasing market opportunities for local producers and farmers…Our state is home to hundreds of wineries that produce some of the best wine in the world, and we want both New Yorkers and visitors to come and enjoy them.”
The new law does not include tasting privileges at the farm stands, which is probably not surprising, given the possible connection between wine tasting at a roadside stand and driving a car. We’ll be interested to see if other states follow New York’s lead and enact legislation to license farm stands.
Starting October 1, 2013, Montana will allow the direct shipment of wine to Montana residents by wineries that hold a Direct Shipment Endorsement. Holders of a Direct Shipment Endorsement may sell and directly ship up to 18 nine-liter cases of wine annually to an individual in Montana who is at least 21 years of age. Any in-state or out-of-state winery that is already registered with the Montana Department of Revenue must pay $50 and file associated paperwork to receive a Direct Shipment Endorsement, and wineries not already registered with the state will be able to simultaneously register with the state and apply for a Direct Shipper Endorsement. Applicants must submit a signed affidavit that they will contract only with common carriers that agree that wine will be delivered only to an individual in Montana who is at least 21 years old and who signs upon receipt of the wine. Records may be due every month and every quarter, and must be held for state inspection for up to three years. All taxes must be paid quarterly and tax records submitted monthly (by the 15th date of the following month) to the Department of Revenue. If a holder of a Direct Shipment Endorsement uses a bonded wine warehouse for fulfillment purposes, the endorsement holder must file a written notice that includes the name and address of the warehouse. The state also requires pre-approval of all wine labels to be shipped into the state. Stay tuned as Montana will likely issue regulations and step-by-step instructions in the coming months.
If you have any questions about shipping wine directly to Montana residents, or residents of any other state, contact one of the attorneys at Strike & Techel.
Announced today, and effective August 9, 2013, the Alcohol and Tobacco Tax and Trade Bureau (the TTB) has announced changes to its labeling requirements for wine. Amending 27 CFR 4.32, the alcohol content for wine no longer must appear on the brand label, and instead it may be printed on the brand label or on other labels affixed to the bottle, including the back label. The TTB also amended 27 CFR 4.36 to the effect that wines with alcohol content of at least 7 percent and no more than 14 percent may still be labeled with either (a) the designation of “light wine” or “table wine” on the brand label, or (b) the numerical alcohol content of the wine. The new amendments do not permit the “light wine” or “table wine” designations to appear on any label other than the brand label. A new COLA is not required if the only change made to an approved label is the relocation of the alcohol content statement. If you have any questions about labeling, contact an attorney at Strike & Techel.
Home brewing. Even Obama does it. Well, maybe not Obama himself, but he reaps the rewards of his staff’s fermentation adventures. Earlier this month, the White House’s beer recipes were released on the White House Blog (check them out here). With the release of the recipes, questions about home brewing and home winemaking have been rising. Each state has its own laws and regulations about making alcoholic beverages at home. Distilled spirits may never be made at home, as the distillation process raises too many safety issues. Most state laws are broad enough to encompass home production of both wine and beer. California’s law separately allows for home wine and home beer production (see Cal. Bus. & Prof. Code § 23356.2), while other states’ laws are often broad, like Illinois’ allowance which states that their laws do not “prevent the making of wine, cider or other alcoholic liquor by a person from fruits, vegetables or grains, or the products thereof, by simple fermentation and without distillation, if it is made solely for the use of the maker, his family and his guests…” 235 Ill. Comp. Stat. 5/2-1. Alabama and Mississippi still do not recognize home brewing, although Mississippi does allow people to make homemade wine (see Miss. Code Ann. § 67-3-11.)
What’s most important to remember is the part in every state’s allowance about the products being made for the home. Home brewed beers and homemade wines cannot be sold to the public. Some states don’t allow homebrew to be taken outside the home, while others allow homebrew to be entered into contests and consumed by others, so long as there’s no charge involved. The federal allowance for home brewing without payment of tax caps production at 200 gallons per year for a household in which two or more adults reside and 100 gallons per year for a household with only one adult (see 27 C.F.R. § 25.205). Home wine production without payment of federal tax has the same 200 gallons for households with two or more adults and 100 gallons for households with only one adult yearly production cap under the federal regulations (see 27 C.F.R. § 24.75). Like other alcoholic beverage laws, allowances vary by state. So if you’re planning on whipping up your own White House Honey Ale or Honey Porter this fall, remember to keep in mind your state’s laws and regulations on home fermentation.
The Internet Corporation for Assigned Names and Numbers (“ICANN”) manages the internet’s domain name system. Before 1998 the following generic top level domains (“gTLDs”) were in existence: .com, .edu, .gov, .int, .mil, .net, .org, and .arpa. In 2000, seven additional gTLDs were added: .aero, .biz, .coop, .info, .museum, .name, and .pro. Then in 2004, eight additional gTLDs were added. They were: .asia, .cat, .jobs, .mobi, .post, .tel, .xxx, and .travel. In 2008, ICANN began a move to open up the recognized gTLDs to a much wider scope by allowing applicants to apply for any gTLD they wanted. However, the process was expensive and complicated, which curbed participation.
The first round of applications was announced today. ICANN received 1,930 applications from 60 countries and territories. Of the applications received, 911 are from North America, 675 are from Europe, 303 are from Asia-Pacific, 24 are from Latin American and the Caribbean, and 17 are from Africa. There are a few applications relevant to the alcoholic beverage business (.beer, .vodka, .wine, and .restaurant). Only one entity applied for .beer and .vodka, while three separate entities applied for .wine and four entities applied for .restaurant. There are also a few applications relevant to any business, such as .sucks and .best. The applications are subject to a 60-day comment period during which anyone in the world can submit comments or file formal objections to the applied for registrations. Additionally, ICANN will review all applications to determine whether or not they should be registered. The full list of applied for gTLDs is available here: http://newgtlds.icann.org/en/program-status/application-results/strings-1200utc-13jun12-en. If you have questions about your brand and the new gTLDs feel free to contact any of the attorneys at Strike & Techel.
TTB is now offering Formulas Online, a web-based system for submitting and tracking formula submissions for domestic and imported alcoholic beverages and nonbeverages. Formulas Online follows COLAs Online, which was implemented several years ago as an online option for filing and tracking COLA Applications. The feature is a welcome arrival and should be much more efficient and provide for better tracking than the paper submission system of formulas. One of the most useful changes is that applications are verified throughout the process, meaning that errors can be corrected before an application is finalized, rather than finding out weeks after a submission that an application was not properly submitted. Submissions with Formulas Online can be made using the same user ID used to access COLAs Online. New users should be sure to review the TTB’s helpful reference guide, found here, which walks through the Formulas Online process in detail, and includes a list of common errors.
At long last, as of May 1, 2012, applications for Out-of-State Winery licenses are being accepted in New Jersey, which will permit out-of-state wineries to ship wine directly to New Jersey consumers. As discussed in earlier posts, including here, New Jersey’s law was passed early in 2012, and makes New Jersey the 39th state to allow winery direct shipping. The law permits wineries producing no more than 250,000 gallons of wine per year to ship wine directly to consumers in the state. License holders may ship no more than 12 cases of wine each year per consumer for personal use. The license also includes limited privileges for holders to sell wine directly to retailers, and for tasting room privileges within New Jersey.
No regulations were promulgated to go along with the direct shipping statute, but earlier this week, the New Jersey Division of Alcoholic Beverage Control released instructions and application forms for Out-of-State Winery licenses that provide more information about direct shipping, and which can be found here. First, the Out-of-State Winery license will be the most expensive direct shipping license in the county, with tiered pricing depending on the amount of wine produced, but costing $938 annually for wineries producing between 50,000 and 250,000 each year. Additionally, the instructions clarify that wine shipped must be manufactured by the Out-of-State Winery license holder. Other details of interest to potential applicants include: a) all applicants must register with the Secretary of state; b) a bond is required; c) all applicants must register with the Division of Taxation; and d) all brands must be registered before they can be shipped into the state. Each of these requirements comes with additional fees, so wineries should make sure the anticipated sales volumes warrant the costs of getting set-up.
Please feel free to contact one of our attorneys if you are interested in more information about direct winery shipping in New Jersey.
We’ve been getting lots of inquiries about the privileges and limitations of the new limited off-sale license offered by the ABC. Though we’ve already commented on the basics of the permit here, we’re following up with answers to the clarification questions we’ve been getting:
Where can I find the privileges for the new off-sale wine license?
Can I get the Type 85 license if I have an upper-tier California license?
No. The Type 85 is a retail-tier license, and there are no special exceptions permitting it to be held with an upper-tier license. On the flip side, you can get it if you are an employee of an on-sale retailer. This is a key distinction between the Type 85 and the Type 17/20 combination that remains popular in California.
Can I deliver product stored out-of-state directly to consumers in California with the Type 85?
No. You must have possession and title to the wine in California. It must be delivered to the consumer from your licensed premises in California or the premises of a licensed public warehouse (Type 14 License).
Can I deliver wine to consumers outside of California with the Type 85?
Yes, but only to about 13 states. 2/3 of those states require additional licensing. You can’t reach New York, Texas, Illinois or Florida.
Do I have to have a location to obtain the Type 85?
Yes. You have to choose an address where the license will be active and your records will be kept. It may not be open to the public. You will have to post notice at the premises and mail notice to nearby neighbors.
Who can I buy wine from with the Type 85?
Licensed California wholesalers and wineries. Not retailers.
How do I apply for the Type 85?
If you are interested in obtaining the license, you need to fill out the forms for an original retail license (e.g. ABC 211-SIG, 217, 208-A/B, 253, 257, 255, 247, 251, 140, entity forms). You can obtain them from the ABC website, or can hire an attorney or licensing specialist to complete them and assist you with the process. The filing fee is $342 ($100 application fee plus $242 annual fee).
The Fourth Circuit of the United States Court of Appeals recently decided that North Carolina’s former Wine Distribution Act did not require that a wholesaler used by an importer of foreign wine must be used by a new importer of that wine. Country Vintner of N.C., LLC v. E & J Gallo Winery, Inc., No. 10-2289 (4th Cir., January 6, 2012). Wine from Bodegas Esmeralda, an Argentinean winery, was being imported into the United States by Billington Imports, which in turn used Country Vintner of North Carolina as its exclusive North Carolina wholesaler for the wine. Bodegas Esmeralda then switched its importer to E & J Gallo. After the switch Gallo began using its own wholesaler network, as opposed to Country Vintner. The Fourth Circuit upheld the district court’s conclusion that there had never been a commercial relationship between Gallo and Country Vintner and therefore, Country Vintner had no protections from North Carolina’s Wine Distribution Act. The protections Country Vintner had under the act with Billington Imports were no longer relevant due to the fact that Billington ceased to import the wine.
In 2010, North Carolina amended its Wine Distribution Act to provide a continuation of wholesaler rights upon a succession to importer rights; however, that amendment only applies prospectively. N.C. Gen. Stat. § 18B-1213. Thus, in importer-wholesaler relationships entered into after the 2010 amendment in North Carolina, the holding of this case will not apply. For relationships entered into prior to the change, however, the case provides instructive insight into wholesaler continuation rights in a change of importer situation.
If you’d like to discuss specific distribution issues, please feel free to contact any of the attorneys at Strike & Techel.
The New Jersey Senate will vote on a direct shipping bill this Thursday, December 15, 2011, called S-3172 in its current form. If passed into law, New Jersey Farm Wineries, New Jersey Plenary Wineries that produce 250,000 gallons or less of wine a year, and out-of-state wineries that produce 250,000 gallons of wine or less each year and that obtain an out-of-state shipping license would be able to ship up to 12 cases of wine per year to any New Jersey consumer. With passage of the bill, New Jersey would join the 38 states that currently allow direct wine shipping to consumers in some form, including Maryland and New Mexico as of earlier this year. However, the “capacity cap” for out-of-state wineries of 250,000 gallons per year remains a point of contention, as that limit would preclude the majority of California wineries from shipping to New Jersey consumers. Stay tuned to find out how the New Jersey Senate votes!
In February we posted about The Alcohol and Tobacco Tax and Trade Bureau’s proposed rule to add new names to the approved list of grape variety names that can be used to designate United States wines. The original post is available here. The TTB has completed its rulemaking process and the revised rule will go into effect November 28, 2011, the Monday after Thanksgiving. More than 50 new names were added to the list, including some popular well known varietals like Grenache Blanc and Grüner Veltliner. To aid in locating information within the new and lengthy list, the TTB also included synonyms for a number of entries. Full details on the revised rule are available here.
Beginning January 1, 2012, a new license will be available for direct-to-consumer wine sales. The new license is the result of approval of Assembly Bill No. 623, which revises California’s Business and Professions code to add Section 23393.5 authorizing the license. Sales may only be made to consumers. All sales must occur through direct mail, telephone or Internet; they may not be conducted from a location that is open to the public. The licensee must take possession and title to all wine sold. All wine must be delivered to the consumer from the licensee’s premises or a licensed public warehouse. The application and annual fee are the same as those applicable to a Type 20 off-sale beer and wine license. The key differences between the new limited off-sale retail license and a type 20 license are that the type 20 requires a brick and mortar store that is open to the public and a type 20 license also allows the sale of beer for consumption away from the licensed premises. If you would like more information about the license, please feel free to contact any of the attorneys at Strike & Techel.
Ever wonder whether the claim that a wine uses “organic grapes” is really true? Wine is one area where if such claims make their way onto a wine bottle, they are almost certainly valid, as the TTB and the National Organic Program (“NOP”) maintain extremely strict requirements for organic claims on the label. The NOP has four primary categories for alcoholic beverages: 1) “100% Organic,” 2) “Organic,” meaning at least 95% organic and with no chemically added sulfites, 3) “Made with Organic [ingredients],” requiring at least 70% organic ingredients and may contain chemically added sulfites, and 4) for certain products that contain less than 70% organic ingredients, the ingredients statement may disclose the organic components.
In order to make any organic claims on a wine bottle or other alcohol label, TTB requires several sources of verification, making for a comprehensive but arduous application process. Along with the items normally required for label approval, applicants must first provide a Processor’s or Handler’s Operation Certificate, which certifies that the winery uses accepted NOP standards. This is often referred to by the TTB as the “organic certificate.” Notably, imported wines sometimes have difficulty meeting this requirement because foreign certifications are only sufficient if the foreign entity is also a USDA-Accredited Certifying Agent. Next, applicants must provide an Accredited Certifying Agent Preview, which indicates that the label has been reviewed and found to be in compliance with TTB rules. Additionally, applicants may need to provide a crop certificate that certifies that the agricultural produce used in the product were grown to NOP standards.
The TTB also has specific rules for the label itself, including requiring a “certification statement,” which includes the name of the accredited certifying agent. These requirements must be repeated for each vintage year, as labels for new vintages must be resubmitted for approval.
Notably, despite these strict requirements for organic wine labels, other statements on wine bottles that pertain to farming techniques and other “green” claims are largely unregulated by the TTB. However, this is a fast-evolving area, so stay tuned.
If you need assistance with organic labels, the attorneys at Strike & Techel are familiar with the process and able to help.
UPDATE: On June 12, 2012, the TTB announced a change to the organic documentation requirements. A copy of the organic certificate is no longer required to accompany COLA applications for alcoholic beverages with “100% Organic,” “Organic,” or “Made with Organic (ingredients)” on their labels. The Accredited Certifying Agent Preview is still required. Please eee the TTB release, available here, for additional information.
If you didn’t partake in the toast that New York wineries made at the end of July when New York Governor Andrew Cuomo signed bill S4143A into law, perhaps now is the time. The bill, known as the Fine Winery Bill, made a number of revisions to the state’s alcoholic beverage code regarding wineries and farm wineries. A number of the revisions to the law were originally suggested by the industry member group the New York State Grape Task Force in a 2008 report to the commissioner of the Department of Agriculture and Markets. Below is a brief outline of the legal changes:
The licensing process for up to five branch offices of a farm winery was simplified through the elimination of separate licenses for each branch. Perhaps more importantly, the privileges of the branch offices now mirror those of the farm winery, as opposed to those of an off-premise retailer as was previously the case.
Farm wineries also gained the legal authority to perform custom crush services. The individual requesting a custom crush must be present during the entire production process and purchase the final wine product.
Wineries can now obtain an annual permit allowing them to participate in events sponsored by charitable organizations. Previously, participation in a maximum of five events was allowed and the licensing process was more arduous.
Other Events & Tastings
Wineries may now charge for use of their premises and for wine tastings.
Farm wineries can now maintain interstate shipping reports on their premises and present them when requested by the State Liquor Authority as opposed to filing those reports semiannually with the State Liquor Authority, thereby reducing reporting expenses.
Elimination of Redundant Licensing
Farm wineries that produce less than 1,500 gallons of wine annually are no longer required to apply for a micro-winery license in addition to their farm winery license.
Nobody hopes for an audit, but like cold cloudy summers in San Francisco, they’re bound to happen. Ideally, if you’re selected for an audit by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), you will have already been following the federal requirements. To aid in compliance, last March the TTB issued a tutorial about the common issues found during TTB audits, which is available here. As the ramp up to harvest begins, this is a good resource to circle back with to ensure compliance. Within the tutorial the TTB listed the most common compliance issues by area, and within that by frequency of occurrence. Further, they provided helpful tips on how to avoid problems in those areas. The issues most frequently seen by the TTB’s Tax Audit Division are:
General record keeping;
Transfer in bond record;
Tax paid removal records; and
Inventory timing, records and signature;
Inventory losses and loss limits; and
Records of bottled or packed wine.
Reporting and Tax Payment:
Timely filing the Report of Wine Premises Operations and correctly completing the form;
Calculating and paying tax on wine;
Filing claims for wine or spirits lost or destroyed while in bond;
Tax payment and filing TTB F5000.24 Excise Tax Returns; and
Basic Permit, Registration and Bond:
Filing amended applications to report changes; and
Maintaining adequate bond coverage.
If you would like assistance with a TTB audit or help with TTB compliance matters, please feel free to contact the attorneys at Strike & Techel.
Earlier this week, California legislators passed a law that requires large internet retailers to collect sales tax for orders placed from California customers. Most of the publicity surrounding the bill has been on large internet retailers like Amazon.com and Overstock.com, which have strongly opposed the law, and are now beginning the process of limiting their presence in California in order to avoid needing to charge sales tax on California purchases. However, the law is not limited to these major retailers, as it stands to affect consumers who order alcohol online as well as out-of-state alcohol retailers who do substantial business in the state.
Two primary factors will most impact whether an alcohol retailer and its consumers will be affected by the new law. First, the law is aimed at large retailers, and only applies only to businesses that have sales within California in excess of $500,000 over the previous 12 months. This likely means that orders from small wineries would remain untaxed, while large internet retailers will probably need to start charging sales tax to California consumers.
Second, the law applies only to retailers that have a “substantial nexus” in California. The precise meaning of this term has already been the source of considerable confusion, and large retailers like Amazon.com have begun breaking ties with California-based affiliates and entities that provide “click-throughs” to their site, so that they are not affected by the law. How this provision affects out-of-state alcohol retailers remains unclear. Retailers that are definitely subject to the law are those with a place of business in California, including an office, place of distribution, sales room, or warehouse. Also, retailers with representatives or salespeople in California will be subject to the law. What remains unknown is whether retailers without any such contacts will be required to collect sales tax on shipments into the state. Stay tuned.
California’s new law went into effect on July 1, 2011, and is codified at Cal. Rev. & Tax Code § 6203.
The Texas Alcoholic Beverage Commission (TABC) issued a press release on Friday, June 3rd advising that it has entered into agreements with FedEx and UPS to halt the shipment of wine by out of state retailers to Texas consumers.
The direct shipping situation in Texas has been in a state of flux for years following the seminal Granholm v. Heald decision, which opened up many states to direct shipment of wine by wineries in 2005. Following Granholm, plaintiffs in a number of states have filed lawsuits to determine the scope of the court’s ruling, particularly whether it applied to retailers or only wineries.
Lawsuits filed in Texas alleged that Texas laws preventing direct to consumer sales by out of state retailers violated the commerce clause of the U.S. Constitution because retailers within Texas were permitted to make such shipments. The cases were decided last year on appeal to the Fifth Circuit Court of Appeals, which ruled that Texas was not required to allow out of state retailers to ship wine to Texas consumers, but could continue to permit in-state retailers to do so.
Following the Court of Appeals’ ruling, the TABC began notifying retailers that shipments to consumers in Texas were not legal. More recently, the TABC has provided FedEx and UPS with the names of out of state retailers who have recently shipped wine to Texas consumers (TABC has not said how it came to identify such retailers.) FedEx and UPS in turn have agreed to notify the listed retailers that such shipments violate the retailers’ shipping agreements with the companies and may lead the shippers to refuse to ship packages for the involved retailers. For its part, TABC says it will contact the retailers directly and may also contact the alcoholic beverage control agencies in the retailers’ home states in cases where the retailers fail to comply with the TABC’s requests.
New Mexico Senate Bill 445 was signed by Governor Martinez earlier this month making New Mexico a permit state, as opposed to a reciprocal state, for winery direct shipping purposes. New Mexico was the last remaining reciprocal state and the change brings the state into compliance with the U.S. Supreme Court’s Granholm v. Heald ruling in 2005. The law becomes effective on July 1, 2011. The new law only applies to wineries, not retailers. It allows them to ship up to two nine-liter cases of wine per month to a New Mexico consumer, provided the winery has the required shipping permit. The permit will have an annual fee of $50 and be valid from July 1 to June 30 of the following year.
Although it has not been extensively covered in the media, those involved in the manufacture and importation of certain wine products should be aware of the California Board of Equalization’s (“BOE”) proposed Regulation 2558.1, involving the definition of “wine” for excise tax purposes in California. The regulation should not affect typical wine producers; however, those that create alternative wine products where a portion of the alcohol within the product is derived from, for example, apples or malt grains, instead of grapes, but the product is marketed as a typical grape wine product, should be aware of the proposed Regulation. Enactment of the Regulation essentially means that a sangria product that is classified as “wine” by the ABC could be classified as a distilled spirit by the BOE, and thus be taxed at $3.30/gallon (the rate for distilled spirits that are 100 proof or less) as opposed to the $0.20/gallon rate applied to wine. That constitutes a tax increase of 1650%. The proposed Regulation would define “wine” for BOE purposes as products that do not include more than .5% alcohol by volume derived from the distillation of fermented agricultural products other than the main agricultural product from which the wine is made. This is different that the California Department of Alcoholic Beverage Control’s (“ABC”) definition, which defines wine as:
…the product obtained from normal alcoholic fermentation of the juice of sound ripe grapes or other agricultural products containing natural or added sugar or any such alcoholic beverage to which is added grape brandy, fruit brandy, or spirits of wine, which is distilled from the particular agricultural product or products of which the wine is made and other rectified wine products and by whatever name and which does not contain more than 15 percent added flavoring, coloring, and blending material and which contains not more than 24 percent of alcohol by volume, and includes vermouth and sake, known as Japanese rice wine.
Essentially the ABC’s definition looks at wine as a product to which only a certain amount (15%) of “other” material can be added, while the BOE’s definition is based on a requirement that 95.5% of the alcohol in the product be derived from a single commodity. The process of this change began at the BOE’s November 17, 2010 meeting, wherein it authorized an informal rulemaking process and proceeded on an expedited basis. On December 17, 2010, after preparing an initial draft of the proposed change, an interested parties meeting was held. During the meeting, it became clear to the staff that there was an industry divergence regarding what constituted legitimate “blending material” under the ABC’s definition and what should be included under the BOE’s definition. Thus, the BOE decided that further interested party meetings would not be useful and they settled on a BOE definition that did not derive from the blending viewpoint, but rather from the alcohol derivation viewpoint. On February 23, 2011, the final proposed regulation was issued. A 45-day comment period then began and the next step is a public hearing in front of the BOE in May 2011. The proposed Regulation is scheduled to go into effect on January 1, 2012.
The pins and needles many in the alcoholic beverage industry were on this morning remain, as the Supreme Court’s orders list issued this morningwas silent on the certiorari decision for Wine Country Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al.Cases are typically distributed among the Supreme Court Justices on Fridays for their conferences, during which they discuss whether or not to grant certiorari. Orders are then typically issued the following Monday. If a case that goes to conference on a Friday is not among the order list published on the following Monday, it usually means the case is being discussed among the Justices, with a few but not a majority, arguing for the grant of certiorari. However, once a case has gone to conference more than once without a subsequent order being issued, it tends to mean that the votes for the certiorari grant are not and will not be there. This is now the second time Wine County Gift Baskets.com, et.al., v. John T. Steen, Jr., et.al. has gone to conference (first on February 18, 2011 and second on February 25, 2011) and not been included in the following Monday’s orders. Thus, it is unlikely that the case will be granted certiorari, although not impossible. If the case is denied certiorari, the Fifth Circuit’s decision will stand. For a summary of the Fifth Circuit’s decision, see our prior post here.
It is called everything from the bombastic “corkage” to the everyperson “BYOB,” but it means the same across all fifty states and beyond: bringing ones own bottle of alcohol to a restaurant for consumption with ones meal. Not every state allows the practice, but Virginia is on the brink of joining the list of states where brown-bagging is permissible. On February 8th, the Virginia Senate passed SB 1292 (27-Y, 13-N) and the bill passed the House on February 22nd (78-Y, 18-N), leaving only Governor Robert McDonnell’s signature to make it official. The bill was introduced by Republican state Senator Jeffrey McWaters, who argued passage of SB 1292 would help boost Virginia’s restaurant and wine industries. SB 1292 will add Section 16 to § 4.1-201(A) of the Code of Virginia, thereby allowing licensed restaurants to permit customers to consume legally acquired wine on a restaurant premises and allowing the restaurant to charge a corkage fee if desired.
Each state that allows BYOB has its own unique set of regulations. Virginia’s neighbor to the South, North Carolina, has a “brown-bagging” permit, which allows customers in permitted establishments to bring and consume on the premises “up to eight liters of fortified wine or spirituous liquor, or eight liters of the two combined.” Restaurants, hotels and community theaters are only allowed such permits if they are located in a county where the sale of mixed beverages has not been approved. Eight liters of fortified wine, which in North Carolina is defined as 16-24% alcohol by volume, or distilled spirits, may seem like an exorbitant amount of alcohol. However, unlike Virginia’s SB 1292, North Carolina’s law is not about enjoying a glass of ones own wine with dinner, but rather about consuming a gin and tonic at ones local haunt when such establishment is not allowed by law to sell gin. Attending “liquor locker” provisions in North Carolina allow patrons to store their brown-bagged alcohol in individual lockers at licensed facilities, so that they can drain their provisions over time. Traditional bottle opening fees do not apply in such situations, rather the restaurant makes money selling the mixer used by the patron, commonly referred to as a “set-up.”
The North Carolina arrangement would be defined as an illegal “bottle club” in California. California only allows people to bring their own alcohol to a licensed premises, and one can only bring alcohol that could have been sold by the licensee at the establishment. So if a restaurant only sells beer and wine, one cannot bring in vodka. Also, in California any unfinished portion of the BYOB must be left at the restaurant, so if you bring a bottle of expensive wine to a restaurant, bring enough friends to drink it all!
As we head into the weekend, we’ll leave you to ponder these burning questions: Is it counterintuitive for California to forbid people from bringing wine to restaurants that do not serve it, but permit patrons to bring wine to restaurants with the exact same bottle available for sale on their wine list? Also, who pays more in BYOB alcohol costs—North Carolina patrons bringing in eight liters of distilled spirits or New York patrons (blind item) dining at a well known restaurant with a $90 corkage fee?
The general rule with alcoholic beverage licensing is that you cannot be involved in more than one “tier” of the industry, meaning that suppliers and importers can’t be wholesalers, wholesalers can’t be retailers, retailers can’t be suppliers, and vice versa. The objective, which came about following the repeal of prohibition, was to promote the organized and responsible distribution of alcohol. It was thought that by keeping the three tiers separate, suppliers would not exert undue influence over retailers, consumers would not be encouraged to over consume, and the societal ills that led to prohibition in the first place would not be repeated. In the 75+ years since the creation of the three-tier system, dozens of exceptions have found their way into the California ABC Act. The tiers are no longer entirely separate and some licensees are permitted to hold licenses in other tiers. For example:
17/20 (Wine and Beer Wholesaler)/(Wine and Beer Retailer)
9/17/20 (Wine and Beer Importer)/ (Wine and Beer Wholesaler)/(Wine and Beer Retailer)
There are restrictions on operating under each of these combinations, but the ability to hold them in combination remains a privilege available in California that is not available in many other states. The “tied-house” rules have implications that extend well beyond the licensing structure. If you are interested in learning more about tied-house issues, feel free to contact any of the attorneys here at Strike & Techel.
Only a grape variety name approved by the TTB may be used as a varietal “type” designation for American wine. The TTB is considering adding more than 50 names to their list of approved varietals to catch up with the explosion of U.S. wines made from obscure grape varietals. The full list of varietals up for public comments is here.
Some of the proposed varietals are not so obscure (e.g. Blaufränkisch, Carignan, Garnacha, Grenache blanc, Grüner Veltliner, Lagrein, Vermentino), but others are extremely unusual, particularly the submissions from the Minnesota Grape Growers (Louise Swenson, Sabrevois, St. Pepin), which highlighted the cold-weather resiliency of the grapes
The deadline has been extended for comments on the Alcohol Tax and Trade Bureau’s (“TTB”) proposed amendment to regulations regarding common winemaking terms used on wine labels and advertisements. Written comments are now due by March 4, 2011. The TTB set out their proposed new regulations in Notice 109, “Use of Various Winemaking Terms on Wine Labels and in Advertisements”, published November 3, 2010 in the Federal Register. The comment period was extended at the request of Napa Valley Vintners (“NVV”). NVV has formed a subcommittee to research and survey members on the proposed new regulations.
There are four main proposals set forth by the TTB in Notice 109. First, the TTB proposes requiring the use of the terms “estate grown,” “estate,” and “estates” to meet the higher threshold definition it currently ascribes to “estate bottled.” Second, the TTB proposes codifying its policy of only allowing the terms “proprietor grown” and “vintner grown” if 100% of the grapes used in a wine are grown on vineyards owned or controlled by the bottling winery. Third, the TTB proposes to codify its current position that “single vineyard” may only be used when 100% of the grapes used in the wine come from one vineyard. Further, it would extend that reasoning to the terms “single orchard,” “single farm,” and “single ranch.” Fourth, the TTB is considering codifying definitions for the following terms: “Proprietors Blend,” “Old Vine,” “Barrel Fermented,” “Old Clone,” “Reserve,” “Select Harvest,” “Bottle Aged,” and “Barrel Select.” The TTB made the proposals in an effort to ensure that consumers are not misled by wine labels and advertising. Should these changes occur the TTB could revoke its approval of previously approved labels.
The Federal Alcohol Administration Act (“FAA Act”) sets forth the regulations for alcohol labeling and advertisements, including wine. The TTB is responsible for the administration of the FAA Act and the promulgation of regulations thereunder. The specific wine labeling and advertising regulations can be found in Title 27 of the Code of Federal Regulations.
A few weeks ago, we wrote about the new permit available to California off-premise consumption retailers that will allow suppliers to come to their premises and conduct instructional consumer tastings. The ABC just released an industry advisory with additional helpful information. The industry advisory is available here.
At this point, we’ve all recovered from the landslide ban on alcoholic energy drinks that crossed the U.S. in November. We covered the opening act, here, when Michigan, quickly followed by Washington, banned the sale of alcoholic energy drinks. New York then reached an agreement with certain suppliers and distributors that halted caffeinated malt beverage sales in that state (review our coverage here). After that, the U.S. Food and Drug Administration (FDA) issued warning letters to four caffeinated alcoholic beverage companies. The letters warned those producers that caffeine added to their malt alcohol beverage products constitutes an “unsafe food additive.”
Substances added to food products, which includes beverages, are considered food additives and are subject to review and approval by the FDA, unless the substance is specifically excluded from the definition of “food additive,” has been sanctioned by the FDA, or is recognized by qualified experts as adequately safe when used as intended. This third category is referred to as Generally Recognized as Safe or GRAS.
As many know, the FDA isn’t the usual stop for federal regulation of alcoholic beverages, but rather the Alcohol and Tobacco Tax and Trade Bureau (TTB) which operates under the Federal Alcohol Administration Act (FAA Act). In this instance, the FDA’s statements meant that the beverages in question were considered adulterated under the Federal Food, Drug and Cosmetic Act (FFDCA). The TTB takes the position that adulterated beverages, even if their formulas and labels have been approved by the TTB, are mislabeled under the FAA Act. This means that shipping and selling such beverages violates the FAA Act, which can result in license revocations and misdemeanor penalties. As the TTB stated, “…each producer and importer of alcohol beverages is responsible for ensuring that the ingredients in its products comply with the laws and regulations that FDA administers. TTB’s approval of a label or formula does not imply or otherwise constitute a determination that the product complies with the FFDCA, including a determination as to whether the product is adulterated because it contains an unapproved food additive.”
Producers of alcoholic energy drinks likely thought their products fell under the GRAS status. The FDA’s announcement ended that assumption. The question is, what other assumptions might it have ended? Alcoholic beverage producers have been using caffeine in their products for years, the most popular being coffee. In the FDA’s Questions and Answers section about the warning letters, it states that the letters are not directed at “alcoholic beverages that only contain caffeine as a natural constituent of one or more of their ingredients, such as a coffee flavoring.” However, in that same section the FDA also stated that, “Other alcoholic beverages containing added caffeine may be subject to agency action in the future if the available scientific data and information indicate that the use of caffeine in those products is not GRAS. A manufacturer is responsible for ensuring that its products, including the ingredients of its products, are safe for their intended use and are otherwise in compliance with the law.” Further, the TTB stated that if requested by the FDA, it would share “formulas for beers containing added caffeine that are approved under 27 CFR Part 25 [TTB regulations].” In the upcoming months, and perhaps years, it will be interesting to see how the GRAS standard is applied to other alcoholic beverages containing some form of caffeine.
Effective January 1, 2011, California off-sale retailers will be eligible for a $300 instructional tasting license that will allow wine, beer and spirits suppliers to conduct free consumer tastings on the retail premises.
The instructional tasting license will be available to most off-sale retailers. Off-sale retailers with a gas station are not eligible unless the retail store is over 10,000 sq. ft. Premises under 5,000 sq. ft. are not eligible unless 75% of gross sales on the premises are alcohol. This will tend to exclude convenience stores and small markets but will enable small wine and liquor stores to obtain the license. Permits may also be denied to retailers in “overconcentrated” areas, i.e., locations with more than the statutorily authorized number of ABC licenses.
Retailers obtaining the permit must separate the tasting area with a barrier and post signage prohibiting minors from entering the tasting area. The retailer is responsible for making sure no minors are in the tasting area and no open containers leave the tasting area. Tastings may only be conducted between the hours of 10:00 a.m. and 9:00 p.m., provided the retail license allows sale of alcohol within that time period.
The tastings must be free, and sample size is limited as follows:
8 oz. per person per day
3 tastings per person per day, 1 oz. per sample
3 tastings per person per day, ¼ oz. per sample
Each tasting event can only involve one class of product and one “authorized licensee” tasting per retailer per day, so a single tasting event may not combine beer and wine tastings or multiple suppliers. “Authorized licensees” who may conduct the tastings are California licensed: winegrowers, winegrower’s agents, beer and wine importer generals, beer and wine wholesalers, wine rectifiers, distilled spirits manufacturers, distilled spirits manufacturer’s agents, distilled spirits importer generals, distilled spirits rectifiers, distilled spirits general rectifiers, rectifiers, out-of-state distilled spirits shipper’s certificate holders, distilled spirits wholesalers, brandy manufacturers, brandy importers, California brandy wholesalers, beer manufacturers, or an out –of-state beer manufacturer certificate holders.
The alcohol tastes are to be served by the “authorized licensee” or her/his agent. The exception is that beer and wine wholesalers, though “authorized licensees”, may not serve tastes unless they hold additional licenses. Wine and spirits for the tasting may be supplied by the “authorized licensee” or bought from the retailer at the original invoiced cost. Beer cannot be provided by an “authorized licensee”, but may be purchased from the retailer at invoice cost. Unused product must be removed at the conclusion of the tasting.
An “authorized licensee” must be present for the tasting, unless the event has been previously advertised and the “authorized licensee” can’t attend. On that note, the “authorized licensee” can advertise the retailer event in advance, subject to restrictions. Retailers are also allowed to advertise the events on their own initiative. Special rules apply if the off-sale retailer already has a Type 42 on-sale license for a tasting bar.
For the complete rules, see Cal. Bus. & Prof. Code §23396.6 and §25503.56.
There was a lot of shake-up in Congress this election season, but things stay the same for Washington’s alcoholic beverage system. Washington remains one of 18 “control” states, which hold broad reign over the wholesale distribution of alcohol. Further, Washington remains one of 12 states that are involved in the retail distribution of alcohol.
Initiatives 1100 and 1105 would have privatized the state’s liquor distribution and sales system. Initiative 1100 would have made sweeping changes to Washington’s alcoholic beverage laws, not only privatizing liquor sales, but eliminating many of the state’s distribution regulations, including price controls, restrictions on volume discounts, and prohibitions against paying on credit for beer and wine sales. Initiative 1105 was less expansive. It called for a privatization of the liquor sales systems, but left most of the distribution laws regarding beer and wine intact, although it relaxed such distribution laws related to liquor.
The two campaigns were at odds with each other. Initiative 1100 was backed largely by Costco Wholesale Corp., while Initiative 1105 was backed mostly by beer and wine distributors. Unions, including the Washington State Council of Firefighters, came out against both initiatives, arguing they would result in more access to alcohol throughout the state and greater public safety concerns.
Both measures failed, though it was a close race for Initiative 1100. Initiative 1100 received a 53.21% “No” vote to 46.79% “Yes.” Initiative 1105 received a 64.51% “No” vote to 35.49% “Yes.” Despite what was surely a significant financial investment in both initiatives by their respective supporters, for the time being it’s business as usual in Washington State.
Imbiblog is published for general informational purposes only and is not intended as legal advice.